Essays on the Role of Government Regulation and Policy in Health Care Markets

University of Kentucky UKnowledge Theses and Dissertations--Economics Economics 2018 ESSAYS ON THE ROLE OF GOVERNMENT REGULATION AND POLICY IN HEALTH CARE MARKETS Grayson L. Forlines University of Kentucky, [email protected] Digital Object Identifier: https://doi.org/10.13023/etd.2018.238 Right click to open a feedback form in a new tab to let us know how this document benefits ou.y Recommended Citation Forlines, Grayson L., "ESSAYS ON THE ROLE OF GOVERNMENT REGULATION AND POLICY IN HEALTH CARE MARKETS" (2018). Theses and Dissertations--Economics. 35. https://uknowledge.uky.edu/economics_etds/35 This Doctoral Dissertation is brought to you for free and open access by the Economics at UKnowledge. It has been accepted for inclusion in Theses and Dissertations--Economics by an authorized administrator of UKnowledge. For more information, please contact [email protected]. STUDENT AGREEMENT: I represent that my thesis or dissertation and abstract are my original work. Proper attribution has been given to all outside sources. I understand that I am solely responsible for obtaining any needed copyright permissions. I have obtained needed written permission statement(s) from the owner(s) of each third-party copyrighted matter to be included in my work, allowing electronic distribution (if such use is not permitted by the fair use doctrine) which will be submitted to UKnowledge as Additional File. I hereby grant to The University of Kentucky and its agents the irrevocable, non-exclusive, and royalty-free license to archive and make accessible my work in whole or in part in all forms of media, now or hereafter known. I agree that the document mentioned above may be made available immediately for worldwide access unless an embargo applies. I retain all other ownership rights to the copyright of my work. I also retain the right to use in future works (such as articles or books) all or part of my work. I understand that I am free to register the copyright to my work. REVIEW, APPROVAL AND ACCEPTANCE The document mentioned above has been reviewed and accepted by the student’s advisor, on behalf of the advisory committee, and by the Director of Graduate Studies (DGS), on behalf of the program; we verify that this is the final, approved version of the student’s thesis including all changes required by the advisory committee. The undersigned agree to abide by the statements above. Grayson L. Forlines, Student Dr. Frank Scott, Major Professor Dr. Jenny Minier, Director of Graduate Studies ESSAYS ON THE ROLE OF GOVERNMENT REGULATION AND POLICY IN HEALTH CARE MARKETS DISSERTATION A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the College of Business and Economics at the University of Kentucky By Grayson L. Forlines Lexington, Kentucky Director: Dr. Frank Scott, Professor of Economics Lexington, Kentucky Copyright© Grayson L. Forlines 2018 ABSTRACT OF DISSERTATION ESSAYS ON THE ROLE OF GOVERNMENT REGULATION AND POLICY IN HEALTH CARE MARKETS Understanding how health care markets function is important not only because com- petition has a direct influence on the price and utilization of health care services, but also because the proper functioning, or lack thereof, of health care markets has a very real impact on patients who depend on health care markets and providers for their personal well-being. In this dissertation, I examine the role of government policies and regulation in health care markets, with a focus on the response of health care providers. In Chapter 1, I analyze the impact of Medicare payment rules on hospital ownership of physician practices. Since the mid-2000’s, there has been a rapid increase in hospital ownership of physician practices, however, there is little empirical research which addresses the causes of this recent wave of integration. Medicare’s “provider-based” billing policy allows hospital-owned physician practices to charge higher reimbursement rates for services provided compared to a freestanding, independent physician practice, without altering how or where services are provided. This “site-based” differential creates a premium for physicians to integrate with hospitals, and the size of this differential varies with the types of health care services provided. I find that Medicare payment rules have contributed to hospital ownership of physician practices and that the response varies across physician specialties. A 10 percent increase in the relative reimbursement rate paid to integrated physicians leads to a 1.9 percentage point increase in the probability of hospital ownership for Medical Care specialties, including cardiology, neurology, and dermatology, which explains about one-third of observed integration of these specialties from 2005 through 2015. Magnitudes for Surgical Care specialties are similar, but more sensitive across specifications. There is no significant response for Primary Care physicians. In combination with other empirical literature which finds that integration between physicians and hospitals typically results in higher prices with no impact on costs or quality of care, I cautiously interpret this responsiveness as ev- idence that Medicare’s provider-based billing policy overcompensates integrated physician practices and leads to an inefficiently high level of vertical integration between physician and hospitals. In Chapter 2, I analyze the effect of anti-fraud enforcement activity on Medicaid spending, with a particular focus on the False Claims Act. The False Claims Act (FCA) is a federal statute which protects the government from making undeserved payments to contractors and suppliers. Individual states have chosen to enact their own versions of the federal FCA, and these statutes have increasingly been used to target health care fraud. FCA statutes commonly include substantial monetary penalties such as “per-violation” monetary fines and tripled damages, as well as a “whistleblower” provision which allows private plaintiffs to initiate a lawsuit and collect a portion of recoveries as a reward. Using variation in state- level FCA legislation, I find state FCAs reduce Medicaid prescription drug spending by 21 percent, while other spending categories - which are less lucrative for FCA lawsuits - are un- responsive. Within the prescription drug category, drugs prone to off-label use show larger declines in response to the whistleblower laws, consistent with FCA lawsuits being used to prosecute pharmaceutical manufacturers for off-label marketing and promotion. Spending and prescription volume for drugs prone to off-label use fall by up to 14 percent. This effect could be driven by pharmaceutical manufacturers’ changes in physician detailing for drugs prone to off-label use and/or physicians’ changes in prescribing behavior. KEYWORDS: Medicare; Vertical Integration; Hospital ownership of physician practices; Medicaid; False Claims Act; Anti-fraud enforcement Author’s signature: Grayson L. Forlines Date: June 26, 2018 ESSAYS ON THE ROLE OF GOVERNMENT REGULATION AND POLICY IN HEALTH CARE MARKETS By Grayson L. Forlines Director of Dissertation: Dr. Frank Scott Director of Graduate Studies: Dr. Jenny Minier Date: June 26, 2018 For Ashley and Maxwell ACKNOWLEDGMENTS I am grateful for the guidance, comments, and help provided by my Dissertation Chair, Dr. Frank Scott, in the writing of this dissertation. I thank the members of my dissertation committee, Drs. John Garen, Scott Hankins, and Aaron Yelowitz for their comments, contributions, and feedback. This work has also benefited greatly from the collegiality and attention of faculty members and other graduate students in the Department of Economics at the University of Kentucky. I thank the Schnatter Institute for the Study of Free Enter- prise for the fellowship support during the writing of this dissertation, and I am thankful for the generous donation by Mr. John Schnatter which made this possible. A number of people have contributed to my success in the Ph.D program through their support and encouragement. I am especially grateful for the mentoring offered by Michael Brookshire including the opportunity to work at Brookshire, Barrett & Associates. I thank my parents for their support throughout my undergraduate and graduate student career. Finally, I thank my wife, Ashley, for her love, support, and encouragement as I pursued my Ph.D in economics. iii TABLE OF CONTENTS Acknowledgments . iii Table of Contents . iv List of Tables . vi List of Figures . vii Chapter 1 Drivers of Physician-Hospital Integration: The Role of Medicare Reim- bursement . 1 1.1 Introduction . 1 1.2 Background and Literature . 4 1.2.1 Integration in the 1990s . 4 1.2.2 Integration Today . 4 1.2.3 Consequences and Causes of Physician-Hospital Integration . 6 1.3 Medicare Reimbursement . 12 1.3.1 Medicare Payment Systems . 14 1.3.2 Federal Anti-fraud and Abuse Regulations . 15 1.4 Data . 16 1.4.1 Medicare Physician Fee Schedule and Hospital Outpatient Prospec- tive Payment System . 16 1.4.2 Medicare Utilization and Payment Data . 17 1.4.3 National Ambulatory Medical Care Survey . 20 1.5 Model and Methodology . 23 1.6 Empirical Results . 25 1.7 Robustness . 28 1.7.1 Parallel Trends . 28 1.7.2 Medicare Patient Share . 29 1.7.3 Dynamic Effects . 31 1.8 Discussion . 33 1.8.1 Geographic Variation in Hospital Ownership . 33 1.9 Conclusion . 35 Chapter 2 Outsourcing Fraud Enforcement – Whistleblower Laws and Medicaid Expenditure . 63 2.1 Introduction . 63 2.2 Literature . 66 2.2.1 Fraud Committed Against the Government . 66 2.2.2 The Social Optimality of Whistleblower Laws . 67 2.2.3 Empirical Studies on Health Care Fraud in Public Programs . 67 2.3 The False Claims Act . 68 2.3.1 FCA Utilization and Recoveries . 69 2.3.2 Recent Amendments . 69 iv 2.3.3 FCA Characteristics, Filing Procedure, and the Role of the Whistle- blower . 70 2.4 Conceptual Issues: Why Prescription Drugs? . 71 2.4.1 FCAs and Different Types of Fraud . 71 2.4.2 Policy Confounders .

Load more